Johnson & Johnson (JNJ) vs. Eli Lilly (LLY) — Which Pharma Giant Should You Add to Your Portfolio in July?

It’s hard to discuss pharmaceutical stocks without reflecting on the enormous success of weight loss drugs. 

The boom has taken early movers, such as Eli Lilly (NYSE: LLY), to new heights — LLY shares, for example, have surged by more than 380% in the past five years.

In stark contrast, traditional pharma companies, such as Johnson & Johnson (NYSE: JNJ), haven’t seen nearly the same level of upward momentum. JNJ, in particular, has only seen stock prices increase by 11.22% in the timeframe discussed for LLY.

But the stock market is a dynamic, reactive, and unpredictable space — where strengths easily turn into weaknesses, surges make equities overvalued, and momentum darlings become candidates for steep corrections.

These are two of the biggest general drug manufacturers. Is one better than the other? Based on our fundamental research, yes. If you’re struggling to pick one, you should go with JNJ.

We’ll start with the big picture and work our way down to specifics. Our quant rating system takes into account 115 factors. Based on this broad analysis, Eli Lilly ranks in the top 15% of the roughly 4,600 stocks that we track. JNJ, on the other hand, ranks in the top 5%. To put it another way, LLY is number 642 on our list — Johnson & Johnson is number 223.

This gives Eli Lilly stock a Zen Rating of B — while JNJ has a rating of A. These categories have historically corresponded to average annualized returns of 19.88% and 32.52%.

To explain why our system has more confidence in Johnson & Johnson stock, we have to look at the details. Every Zen Rating consists of seven Component Grade ratings, which provide a more nuanced look at a stock’s particular strengths and weaknesses.

As you can see, Eli Lilly has the edge when it comes to Growth — in this category, it ranks in the 82nd percentile, whereas JNJ ranks in the 64th. However, that’s about where LLY’s advantages end.

Now let’s look at value. At a price-to-earnings (P/E) ratio of 64.43x, Eli Lilly shares are expensive, since the market average stands at 32.24x — roughly half of LLY’s ratio. On the other hand, JNJ is trading at a P/E of 16.78x — almost half the market average. The disparity is quite significant — looking at these two stocks in terms of their Value Component Grade rating, JNJ ranks in the top 15% — while Eli Lilly ranks in the top 21%.

Johnson & Johnson is also on a much more secure financial footing — the company’s profit margins stand at 24.4%, compared to LLY’s 22.7%. In terms of their debt-to-equity (D/E) ratios, JNJ is also ahead, with 1.48 to LLY’s 4.67. 

Lastly, JNJ’s short-term assets are valued at $71.55 billion — and it has $56.9 billion in short-term liabilities and $58.66 billion in long-term liabilities. Eli Lilly, on the other hand, has $41.26 billion in short-term assets, $30.07 billion in short-term liabilities, and $43.47 billion in long-term liabilities.

That was a lot of numbers, so to summarize — JNJ has $71.55 billion in short-term assets versus $115.56 billion in liabilities. Eli Lilly has $41.26 billion in short-term assets and $73.54 billion in liabilities. Note that LLY’s long-term liabilities of $43.47 billion, on their own, outpace the company’s short-term assets.

When looking at Financials, our system ranks JNJ in the top 10% of stocks — while LLY ranks in the top 27%. Once again, we’re looking at a significant difference.

In the interest of time, we won’t go into every single nook and cranny — nothing replaces hands-on research, after all, but there are a few additional points worth mentioning.

Our Safety rating measures stock price stability, how predictable earnings are, and the consistency of revenue inflows. This is the area where the difference is the most severe — LLY ranks in the 35th percentile, while JNJ ranks in the 98th percentile. We won’t go into specific metrics too much — suffice to say that LLY has a beta of 0.6 to JNJ’s 0.26.

Lastly, our AI Component Grade rating uses a neural network trained on more than two decades of data to figure out likely outperformers. Johnson & Johnson shares rank in the top 6% in this regard — while LLY ranks in the top 41%.

LLY’s success is heavily concentrated in the weight loss drug boom — but that’s an increasingly crowded market. 

Putting all your eggs in one basket — and having that basket be in a highly competitive space, vulnerable to pricing pressure and supply hiccups, is a huge risk, particularly in a volatile market. JNJ is much more diversified, as it spans immunology, medtech, oncology, and much more — it’s a different approach, and one that doesn’t necessarily need a blockbuster to carry the load.

—> Click here to research JNJ and LLY. 

Interested in more drug manufacturer stocks? Novartis (NYSE: NVS) is currently the top-rated stock in the industry, so you might want to start your search there.

What to Do Next?

• 9 Special Stock Lists You Need Now >
• See All “A” Rated Stocks with +32.52% Average Annual Return >
• 2 New Stocks to Buy from Steve Reitmeister >

Want to get in touch? Email us at news@wallstreetzen.com.